How Do You Use a Stock's Historical Data in Investing?


Quick Answer

The quantitative analysis of a stock's historical data is known as a fundamental approach to investment, and there are at least three metrics an investor should consider when analyzing a given stock offering. These metrics include price-to-earnings ratio, price-to-book ratio and debt-equity.

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Full Answer

The price-to-earnings ratio is one of the best-known metrics for analyzing a stock, and can be calculated by dividing a company's share price by the earnings per share. This represents how much investors will pay for each dollar of a company's earnings, and is important for comparing valuations of companies in the same industry. A low price-to-earnings ratio is preferable to a high one.

The price-to-book ratio is a metric similar to price-to-earnings. It is calculated by dividing the share price by the company's net assets. Whereas price-to-earnings represents an investor's commitment to a company's earnings, price-to-book represents an investors commitment to a company's assets. For most stocks, a price-to-book of or below 1.5 is considered preferable.

Debt-equity is an important metric for calculating how a company finances its assets. It is calculated by dividing a company's total liabilities by shareholders equity. This metric demonstrates how much a company was financed by debt sources, like loans or bonds, or equity, like shares of stock.

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